Pension automatic enrolment: Q&A

Comments (0)
A scheme to automatically enrol millions of people into workplace pensions went live on Monday, with staff working for the biggest businesses being first in line.The scheme – called automatic enrolment – will see huge numbers of workers automatically signed up to a pension scheme over the next six years.But what is the scheme all about and how will it affect you? Find out with our automatic enrolment Q&A. What is a workplace pension? In short, it’s a saving scheme for retirement organised through an employer. The employer may have their own scheme, offer one from a specialist pension provider, or use a government-backed scheme.The scheme must be one suitable for automatic enrolment, and it must meet certain minimum qualifying standards.A new pension scheme, NEST (National Employment Savings Trust) has been established, and it is available to any employer who chooses to use it. Who will be automatically enrolled into a pension scheme? Your employer will enrol you into a workplace pension if you:- are not already in a pension at work- are aged 22 or over- are under State Pension age- earn more than £8,105 a year- work in the UK When is this happening? Automatic enrolment will be introduced over the next six years.When you will be enrolled depends on the size of the organisation you work for. Very large employers – those with more than 120,000 staff - are doing it first, in late 2012 and early 2013. Over the following years smaller firms will start enrolling staff. Your employer will give you the exact date nearer the time.Eventually, even the smallest employer will be obliged by law to enrol staff.Firms with fewer than 50 workers will not start enrolling their staff until June 2015 at the earliest.View a full timetable of dates on the Pensions Regulator website: The Department for Work and Pensions (DWP) estimates 380,000 workers will be signed up in October, a total of 420,000 will be enrolled by the end of November, and 600,000 will be in place by the end of the year. How much of my earnings will go to my workplace pension? Directgov explains: “How much you, your employer and the government will pay into your pension depends on the type of pension scheme your employer has. Whoever runs your pension scheme will be able to give you more information.“Your employer will take your contribution directly from your pay. This applies however regularly you get paid, for example, daily, weekly, monthly, or four weekly.” But remember - you aren’t the only one putting money in. Your employer has to contribute too, provided you earn over £5,564 a year. You will also get a contribution from the government in the form of tax relief. This means some of your money that would have gone to the government as income tax goes into your workplace pension instead.The Independent reports: “Savers will typically need to put aside just over £2 a week to get them started, according to Nest, a not-for-profit pension scheme set up under the new rules.“In the first four years of the scheme, workers contribute a minimum of 0.8 per cent of earnings which works out at around £2.37 a week for someone on an average annual salary of around £20,000, Nest found.“Based on this average, employers will contribute nearly £3 per week as well and almost 60p will be added in tax relief, meaning the total going in is just under £6 a week, or around £25 a month or £309 a year.“But by 2018, as the minimum contribution increases, employees will be putting aside around £12 of their pay every week, in return for almost £9 from their employer and nearly £3 in tax relief, leading to average annual contributions of £1,235, Nest said.”To find out more, click here. What if I don’t want to be automatically enrolled? Don’t worry, you can opt out. You’ll be given a letter about the scheme when it starts at your workplace, explaining who the pension provider is. You can ask this provider for an opt-out form.Fill it in within a month and your involvement will be cancelled.The BBC explains: “If [workers] take longer, then they will start to build up a very small pension pot. This will still exist when the opt-out is processed, but it will just sit there untouched until retirement.”If you opt out you’ll be enrolled again every three years by your employer, or after three months at a new job. At this point you’ll need to complete the opt-out process again.Your workplace pension belongs to you, even if you leave your employer in the future. Why is this happening? Directgov explains: “People are living longer. You could be retired for twenty years and you need to think about how you’ll fund it.“The State Pension is a foundation for your retirement. But if you want to have more when you retire, you may want to consider contributing to a workplace pension. “The full basic State Pension in 2012/13 is £107.45 per week for a single person.“The government is getting employers to enrol their workers automatically into a workplace pension so it's easier for people to start saving.” What are the benefits of automatic enrolment? It will help you to save: Automatic enrolment is seen as the best way to overcome people's apathy when it comes to saving. Under the new scheme, “rather than taking action to save, an employee has to take action not to save,” the Department for Work and Pensions (DWP) says. Plus, as you’re automatically enrolled, it’s a relatively hassle-free way of saving while you earn.You’re not the only one paying in: The contribution from your employer means your pension can build up more quickly than if you were saving for your retirement on your own.And as the government is paying into it in the form of tax relief, instead of going to the government as income tax, some of the money you earn now goes into your pension instead.For more information about automatic enrolment: